SALF305 - Payment of Tax: Automatic
Interest and Surcharges: Interest Charged on Late Payments of
Tax
Section 86(1)
| 3.56 | A charge to interest
automatically arises on any tax paid late, whether income tax,
NICs, capital gains tax, or Student Loan repayment. So a charge to
interest can arise in respect of
- any payment on account (Section 59A)
- any balancing payment (Section 59B(3) or
(4))
- any tax payable following an amendment to
a self assessment, whether made by HMRC or the taxpayer (Section
59B(5))
- any tax payable in a discovery assessment
made by HMRC (Section 59B(6))
- any tax payable following a postponement
(in relation to a discovery assessment or HMRC amendments to a self
assessment as the result of an enquiry, see paras 4.72 & 4.95)
(section 55).
|
Section 86(1) to (3)
| 3.57 | For payments on account
and balancing payments the interest arises on any sums outstanding
between the due date for payment and the date on which payment is
finally made.
For amendments to self assessments, and discovery
assessments, the interest charge normally runs from the original
dates for the relevant tax year (with respect to the balancing
payment and any payments on account due) even though the due date
for payment of the tax itself may be a later date.
The interest charge arises from the due date even though that
date may be a non-business day. |
| 3.58 | The rate of interest
charged is the rate set by regulations made under FA89/S178. |
Section 86(4) to (9)
| 3.59 | The normal interest
charge on payments on account arises on the difference between what
is actually paid and what should have been paid. In determining
these amounts no account is taken of any tax paid on account other
than under Section 59A(2) or amounts payable as capital gains
tax. |
| 3.60 | For example, if a payment
of £3,500 should have been made on 31st July 2006, but only
£2,500 is paid on that date, interest accrues on the balance
of £1,000 from 1st August 2006 until the date on which the
outstanding payment is finally made. |
| 3.61 | The amount that should
have been paid for any payment on account can never exceed 50% of
the relevant amount for the preceding year, even if the income tax
for the current year, after taking into account tax deducted at
source, exceeds the total of the payments on account. The taxpayer
is under no obligation to increase the payments on account even
when it is clear that they will be some way short of meeting the
full tax liability for the year. So there can be no question of an
interest charge on a payment on account simply because the overall
liability for the current year has increased relative to the
preceding year. |
| 3.62 | A taxpayer's self
assessment for 2010-11 is £2,000. Therefore the payments on
account for 2011-12 are |
| 31st January 2012 | £1,000 | |
| 31st July 2012 | £1,000 | |
The self assessment for 2011/12 is £3,000 and any
balancing payment is due on 31st January 2013.
Assume that
- the payment of £1,000 due on 31st
January 2012 is not paid until 1st April 2012
- only £500 of the payment due on 31st
July 2012 is paid at that date
- the balancing payment of £1,500 due
on 31st January 2013 is not paid until 1st March 2013.
Section 86 interest arises on
- £1,000 for the two months 1st
February 2012 to 31st March 2012
- £500 for the six months 1st August
2012 to 31st January 2013
- £1,500 for the month 1st February
2013 to 28th February 2013.
Section 86(4)
| 3.63 | Where there is a claim to
reduce payments on account under Section 59A(3) or (4), and
following
- submission of the taxpayer's tax return
and self assessment for the current year, or
- an enquiry into the tax return and self
assessment for the previous year (on which the payments on account
were originally based)
that claim proves to be excessive, there may be an
underpayment of tax. |
Section 86(5) & (6)
| 3.64 | This underpayment is the
difference between
- the amounts paid as a result of the claim,
and
- the amounts that should have been paid if
the claim had been made in the correct amount. The amount that
should have been paid cannot exceed 50% of the relevant amount for
the preceding year.
|
Interest arises on any such underpayment of tax.
| 3.65 | A taxpayer's self
assessment for 2010-11 is £4,000. Therefore the payments on
account for 2011-12 are |
| 31st January 2012 | £2,000 | |
| 31st July 2012 | £2,000 | |
On the basis of a profit forecast at 31 December 2011 the
taxpayer makes a claim to reduce these payments to £1,000
each. The reduced payments are both made on time.
When the 2011-12 return is filed on 31st January 2013 the
self assessment shows an income tax liability for 2011-12 of
£3,750. The balancing payment of £1,750 is paid on 1st
April 2013.
Section 86 interest arises on
- £875 for the 12 months 1st February
2012 to 31st January 2013
- £875 for the six months 1st August
2012 to 31st January 2013
- £1,750 for the two months 1st
February 2013 to 31st March 2013.
If the income tax liability for 2011/12 had been £5,600,
and a balancing payment of £3,600 was paid on 1 April 2013,
then Section 86 interest would have been due on
- £1,000 for the 12 months 1st February
2012 to 31st January 2013 (£1,000 is the maximum on which
interest can be charged as 50% of the relevant amount for the
previous year is £2,000, of which £1,000 was paid on
account)
- £1,000 for the six months 1st August
2012 to 31st January 2013
- £3,600 for the two months 1st
February 2013 to 31st March 2013.
Section 86(7) to (9)
| 3.66 | It may well be that
following
- submission of the taxpayer's tax return
and self assessment for the current year, or
- an enquiry into the tax return and self
assessment for the previous year (on which the payments on account
were originally based)
a taxpayer is entitled to a repayment of tax previously paid
on account. But where those payments on account were never made, or
appeared to be inadequate a Section 86 interest charge will have
arisen. |
| 3.67 | In such circumstances
Section 86 interest is only chargeable on the amounts that should
have been paid if the claim had been made in the correct amount.
(Again, the amount that should have been paid cannot exceed 50% of
the relevant amount for the preceding year.) Any existing interest
charge on amounts in excess of the amounts that should have been
paid is mitigated. |
| 3.68 | A taxpayer's self
assessment for 2010-11 is £5,000. Therefore the payments on
account for 2011-12 are |
| 3.69 | |
| 31st January 2012 | £2,500 | |
| 31st July 2012 | £2,500 | |
After submitting the 2010-11 tax return the taxpayer
realises that it contains an error. The first payment on account is
paid in full, and on time, but the taxpayer decides not to pay any
further amount until the liability for 2010-11 is settled. On 31st
September 2012 it is agreed that the liability for 2010-11 is only
£3,600. The taxpayer pays a further £1,100 on 1st
November 2012.
When the 2011-12 return is filed on 31st January 2013 the
self assessment shows an income tax liability for 2011/12 of
£4,400. The balancing payment of £800 is paid on 1st
March 2013.
If the payments on account had been based on the true
liability for 2010-11 they would have been
| 31st January 2012 | £1,800 | |
| 31st July 2012 | £1,800 | |
The taxpayer is entitled to repayment supplement on
£700 (2500 - 1800) for the six months 1st February 2012 to
31st July 2012.
Section 86 interest arises on
- £1,100 (1,800 - 700) for the three
months 1st August 2012 to 31st October 2012
- £800 for the month 1st February 2013
to 28th February 2013.
| 3.70 | Any adjustments to the
interest charged are made automatically, in the taxpayer’s
statement of account. This statement is updated whenever there is a
change in the account, for example when a payment is received, and
the statement includes all interest charges. |
